There is no concord on how banks should police their model risk. But two Fed economists have an idea
This paper aims to reflect the current state of the discussion on the validation of market risk forecasts by means of backtesting.
This study reviews the various statistical methodologies that are in place to test multiple systematic trading strategies and implements these methodologies under simulation with known artificial trading rules in order to critically compare and evaluate…
Measure aims to provide better gauge of VAR violations
In this paper, the authors present a new backtest for the unconditional coverage property of expected shortfall.
This paper analyzes the impact of different estimation window strategies, including structural breaks and forecast combinations, on forecasting common risk measures such as VaR and ES.
In this paper, the authors adopt a new method of predicting VaR, to estimate balanced portfolios’ VaR.
A fast-moving, headstrong hedge fund – hit by rare losses after a black swan event touched on an overweight country exposure – ponders adding fresh quantitative expertise. Much to traders’ chagrin, the chief investment officer and chief operating officer…
In this paper, the authors examine the problem of validating and calibrating FHS VaR models, focussing in particular on the Hull and White (1998) approach with EWMA volatility estimates, given its extended use in the industry.
Metrics commonly used to build indexes bring zero alpha, says Research Affiliates
Albanese, Caenazzo and Syrkin show how full-revaluation VAR is more accurate and robust than sensitivity-based VAR measures
Swapping non-modellable risk factors for proxies may make it harder to pass P&L attribution test
This paper proposes a performance test based on empirical similarity that would account for margin shortfall, procyclicality and efficiency in a single score.
In richer test, ‘filtered’ VAR beats five other measures
Proposed CCAR changes make KVA calculations even more complex
Sharpe ratios on complex products fall 73% compared with backtests
This paper examines the performance of three DeMark indicators over twenty-one commodity futures markets and ten years of daily data.
In this paper, the authors provide tools to test the correctness of backtest engines for setups with at most one entry and one exit.
Anfuso, Aziz, Loukopoulos and Giltinan propose a method to develop and backtest forecasting models for IM
Risk models are backward-looking but history won’t repeat itself
Aspect Capital’s Stephen Wood picks out the most common pitfalls in simulations of quantitative investment strategies